The brave new world of rent

Let’s face it the days of owning your own house with the white picket fence, all the furniture inside and a car, mortgage and debt free, are rapidly disappearing.

Likewise businesses that paid cash for most of their assets, from buildings to machinery, are becoming a distant memory.

In today’s society it is not uncommon practice for individuals or business people to look at renting, hiring or leasing instead of buying for both their personal or commercial needs.

Renting, hiring and leasing anything from homes, cars, white goods, furniture, machinery and other items has in the past been viewed as throwing money down the drain. Not anymore!

There are a number of factors now driving our future more towards a Rental Environment to be able to afford the most new and latest products.

Firstly let’s take a look at the Generation Y people. Many people between the ages of 17 and 28 years want instant gratification. They are all about “now” – concepts such as patience and working hard to pay something off are a thing of the past.

Of 3.7 million new credit-card applications last year, almost a third were from those aged 18 to 27.

A Commonwealth Bank survey last year showed 73 per cent of Gen Y Australians were in debt. Another survey by employment group Manpower found about 54 per cent were single, 16 per cent still were still at home and 57 per cent were renters.

What’s 4 out of 10 Gen Y Australians do not believe they will own a house.

However, it doesn't seem to worry them. Young people are great consumers; they like to eat out and spend on luxury items, such as holidays, technology, equipment and clothes.

An upside of renting is that you can pick up and move almost whenever you want, with very little penalty and low risk. If you try to sell a house or car during a bad economic time, you're at risk of losing money. Not so when you rent.

The tendency toward renting is not limited to young Australian consumers; it also extends to the business world.

To be able to operate successfully, your business might need to acquire assets or capital equipment, such as plant or machinery.

These assets may include office furniture, computer equipment, company vehicles, engineering machines or service equipment.

You could buy all of this equipment outright, or you might decide to rent or lease it instead. There are advantages and disadvantages in both options but for many cash strapped businesses renting is the only option.

In the current economic times, many businesses simply cannot afford the cost of buildings, machinery, software and other out goings.

Leasing equipment can be a good option for business owners who have limited capital or who need equipment that must be upgraded every few years. Leasing business equipment and tools preserves capital and provides flexibility even though in strict cash terms it may cost more in the long run.

Businesses may look at the advantages of having tax deductible, flexible term leases, which can make it easier to upgrade equipment - especially if it’s high-end equipment that can be obsolete within a relatively short period.

In fact, Moore’s Law practically ensures that if you purchase high-tech equipment, you run a real risk that the equipment will be technologically obsolete within two years, and you may be forced to reinvest in new equipment.

So aside from prohibitive initial expense of purchasing business equipment, in a short time you can find yourself saddled with practically worthless ageing equipment that is only fit for recycling, while faced with the prospect of having to find cash all over again for its replacement.

Renting and leasing is not the exclusive of domain of cash strapped small businesses. Some of the largest corporations in the world rent and lease much of their asset base, including their real estate, transport, plant and office equipment.

In fact, back in the 1980s many large asset rich publicly traded corporations sold off much of their non-core holdings such as real estate so they would be less attractive to corporate raiders looking to strip, break them up and sell off their assets. For them it made sense to rent their offices and factories and use the freed up capital for core business ventures.

Returning once more to the consumer world, there is a school of thought that contends that the only real estate worth owning is incoming yielding commercial and residential rental properties. So perhaps Gen Y Australians have not got it completely wrong after all?